Section 5 -- Financial information and financial decisions

Question 1

define ‘start-up capital’

Answer 1

finance needed by a new business to pay for essential fixed and current assets before it can begin trading

Question 2

define ‘working capital’

Answer 2

finance needed by a business to pay day-to-day costs

Question 3

define ‘capital expenditure’

Answer 3

money spent on fixed assets which will last for more than one year

Question 4

define ‘revenue expeniture’

Answer 4

money spent on day-to-day expenses which do not involve the purchase of a long-term asset

Question 5

define ‘internal finance’

Answer 5

obtained from within the business itself

Question 6

define ‘external finance’

Answer 6

obtain from sources outside of and separate from the business

Question 7

define ‘micro-finance’

Answer 7

providing financial services to poor people not served by traditional banks

Question 8

define ‘short-term source of finance’

Answer 8

finance that must be paid back within a year and includes: overdraft, facility, trade credits, factoring

Question 9

define ‘long-term source of finance’

Answer 9

funding obtained for a time frame exceeded one year in duration and includes: owners savings/share capital; loans; debentures; a mortgage; hire purchase or leasing; grants

Question 10

define ‘cash flow’

Answer 10

the cash inflows and outflows over a period of time

Question 11

define ‘cash inflows’

Answer 11

sums of money received by a business during a period of time

Question 12

define ‘cash outflows’

Answer 12

sums of money paid out by a business during a period of time

Question 13

define ‘cash flow cycle’

Answer 13

stages between paying out cash for labour, materials, etc and receiving cash from the sale of goods

Question 14

define ‘profit’

Answer 14

surplus after total costs have been subtracted form sales revenue

Question 15

define ‘cash flow forecast’

Answer 15

estimate of future cash inflows and outflows of a business, usually on a month-by-month basis

Question 16

define ‘opening cash balance’

Answer 16

amount of cash held by the business at the start of the month

Question 17

define ‘net cash flow’

Answer 17

difference, each month, between inflows and outflows

Question 18

define ‘closing cash balance’

Answer 18

amount of cash held by the business at the end of each month

Question 19

define ‘working capital’

Answer 19

capital available to a business in the short term to pay for day-to-day expenses

Question 20

define ‘accounts’

Answer 20

financial records of a firm’s transactions

Question 21

define ‘accountants’

Answer 21

professionally qualified people who have responibility to keep accurate accounts and for producing the final accounts

Question 22

define ‘final accounts’

Answer 22

produced at end of the financial year and give details of the profit or loss made over the year

Question 23

define ‘income statement’

Answer 23

document that records the income of a business and all costs incurred to earn that income over a period of time

Question 24

define ‘gross profit’

Answer 24

made when sales revenue is greater than the cost of goods sold

Question 25

define ‘sales revenue’

Answer 25

income of a business during a period of time from the sale of goods or services

Question 26

define ‘ cost of goods sold’

Answer 26

cost of producing or buying in the goods actually sold by the business during a time period

Question 27

define ‘trading account’

Answer 27

how gross profit of a business is calculated

Question 28

define ‘net profit’

Answer 28

profit made by a business after all costs have been deducted from sales revenue

Question 29

define ‘depreciation’

Answer 29

the fall of the value of a fixed asset over time

Question 30

define ‘retained profit’

Answer 30

net profit reinvested back into a company, after deducting tax and payments to owners

Question 31

define ‘dividends’

Answer 31

annual payments from company profits to shareholders

Question 32

define ‘balance sheet’

Answer 32

shows value of a businesses assets and liabilities at a particular time

Question 33

define ‘assets’

Answer 33

items of value which are owned by the business

Question 34

define ‘liabilities’

Answer 34

debts owed by the business

Question 35

define ‘non-current assets’

Answer 35

items owned by the business for more than one year

Question 36

define ‘current assets’

Answer 36

are owned by a business and used within one year

Question 37

define ‘non-current liabilities’

Answer 37

long-term debts owed by the business

Question 38

define ‘current liabilities’

Answer 38

short-

Question 39

define ‘liquidity’

Answer 39

ability of a business to pay back its short-term debts

Question 40

define ‘capital employed’

Answer 40

shareholders equity plus non-current liabilities and is the total long-term and permanent capital invested in a business

Question 41

define ‘illiquid’

Answer 41

assets are not easily convertible into cash